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Whiskey Surge

Posted on  | November 24, 2014   Bookmark and Share
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Amid the best of times for brown goods, distillers brace & build for the future.

Try to find someone in Kentucky (or Tennessee, for that matter) in the whiskey business who ISN’T optimistic. Go ahead, try. You’ll have about as much luck as a consumer looking for a bottle of Pappy Van Winkle.

Of course, most American whiskey brands sold today come from a plentiful supply, and there’s little worry that the Jim Beams and Jack Daniel’s and Evan Williams of the world will be hard to get anytime soon. To make sure that supply stays steady and grows, though, most of the major and some minor players are splashing money around for new facilities like there’s a gold rush all over the Bluegrass State.

For instance, in May Diageo announced plans to spend $115 million on a 750,000-case Bulleit distillery in Shelby County. Campari recently completed its $100-million-plus investment in expanding Wild Turkey including a shiny new visitor center. Brown-Forman plans to spend at least $30 million on a distillery and visitors facility for its founding brand, Old Forester, in downtown Louisville by fall 2016. This follows the company’s $35M spend at Woodford Reserve and $100M for Jack Daniel’s.

Smaller but no less significant investments—like the creation of a distillery for Michter’s—are merely proof of what retailers have had an inkling of in the past few years: Customers are crazy about the real American spirit.

Sales of bourbon and Tennessee whiskey jumped nearly 20% from 2008 to 2013, according to the Distilled Spirits Council of the United States. Last year, more than 18 million 9L cases were sold domestically, totaling $2.4 billion in revenue for distillers. Inventories reached roughly 5 million barrels last year in Kentucky, the highest level since 1977. Whiskey exports from the United States exceeded $1 billion in value for the first time ever in 2013, and might have been higher had distillers had greater capacity.

Supply, Meet Demand

Josh Hammond, President of Buster’s Liquors and Wines in Memphis, TN, has been at the epicenter of the American whiskey boom; his store is up more than 40% over the past few years. “It’s been fascinating to see how broad interest that used to be only in wine has crossed over to spirits,” says Hammond.

The much-discussed whiskey shortage is something distillers have spoken of frequently—few as directly as Buffalo Trace, which in 2013 warned of potential shortages. “What we’re trying to do is keep people aware and know the reason why we do certain things we do, like allocations and limited releases,” said Harlan Wheatley, Master Distiller at Buffalo Trace, at the time. “We don’t have an endless supply and we’re trying to be smart and fair about what
we ship where.”

In general, it’s only at the margins and especially among limited edition offerings, that shortages are extreme. But many brands are currently allocated market to market.

Kris Comstock, Marketing Director for Buffalo Trace, says the distiller ships more product every year. He adds, “Right now, we have to be very careful about expanding distribution into new markets and focus on maintaining supply on our regular
steady customers.”

For instance, the annual fall release of the Antique Collection-—five extra aged or high proof whiskies including George T. Stagg and William Larue Weller—sold out in a day. “When we send Blanton’s and Buffalo Trace down to Georgia, it’s probably more than last September, but if it sells out in two days, there’s not much we can do about it except send more the next month,” he says.

The situation hasn’t encouraged distillers with memories of the dark days to increase prices recklessly. “For labels in the market for a long time with a very well established price/value position, like Evan Williams Black, we have to be smart about how we market and price the brand,” says Larry Kass, Director of Corporate Communications at Heaven Hill. “The fact that it’s established and in the three-tier system means you’re never going to see it take dramatic price increases, maybe a dollar or two every year or two. Brands like that will continue to be outstanding values among distilled spirits.”

Price Matters

It’s a luxury problem, and distillers have discovered that raising prices on the limited-edition releases has been a profitable and beneficial way to elevate the image of American whiskey.

Elijah Craig Single Barrel is a good example. Launched as an 18-year-old in 1994 at about $35, it was one of the more expensive American whiskies at the time. Supply eventually dictated a move to a 20-year-old bottling, at which point the company decided to move the price up, with pleasant results. Now, the latest iteration, a 23-year-old, arrived last fall with a suggested retail price of $199. “Now there plenty of others at these price point, so there’s clearly an audience that wants and will pay for them,” says Kass.

In the meantime, most brands at Heaven Hill are growing, with some on tight allocation. Kass notes, “Larceny did well instantly, and it’s difficult to supply starter markets and then grow it. But we’re catching up.”

Yvonne Briese, Diageo’s VP of North American Whiskey, agrees that innovation has opened the door for raising prices at the high end: “We do believe there is an opportunity to provide better offerings—rare expressions, different finishing, different mash bills—to expand into this area and it will affect the pricing tiers eventually. It’s always about a value equation for consumers.”

With Bulleit growing, Diageo has turned to bolstering Tennessee whiskey George Dickel as well. “We’ve really increased our focus on Dickel including an unaged and rye expression, and we’ve seen the 8 and 12 Year Old at levels we haven’t seen in a while,” he says.

As Chris Bauder, General Manager, U.S. Whiskies, Beam Suntory, says, balancing supply and pricing has become a full-time job. “As whiskey demand continues to grow—not only in the U.S. but also globally—we do expect to see brands increase their prices,” Bauder says. “While we are certainly keeping our options open for future pricing changes on select brands and SKUs, we feel that our overall American Whiskey portfolio is priced appropriately.”  

One factor that has tempered price jumps: even though supplies are tight, bourbon hasn’t shed its hardscrabble image, says Andrew Floor, Senior Marketing Director of Brown Spirits for Campari USA: “There are still a lot of people who think of bourbon as a working-class category, and general consumer perception is still evolving. That affects its ability to be priced higher versus, say, single malts.”

He offers that low pricing isn’t really sustainable; single malts are able to command a higher price because of the limited amount of aged stock. But with so-called craft distillers entering the market closer to Scotch-like prices, major producer bourbon looks even more bargain-priced.


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